Wednesday, April 17, 2013

The commodity markets are telling us that the world economy is slowing down. Besides gold dropping like a rock, many other commodities are weak. This is based on perceived weak demand for commodities in the future. With Europe and England making a conscious decision to opt for austerity a few years ago the last glimmer of a growing economy was the US. We have not actually felt the effects of the sequester but the perception that the US is willing to forego growth and cut government spending to start correcting the deficit is enough to push the world economy onto a slower track. In the US, this slower track will manifest itself by showing lower growth and lingering unemployment into late 2015. For the rest of the world, the effect will be magnified when combined with their existing austerity measures.

Europe has not made much progress with their existing problems. Portugal and Ireland requested and received an extension on their bail out payback. Greece is same old, same old. The unemployment numbers in countries like Spain and Italy are enormous. There seems to be a recognition that the EU should look to a more pro growth and a less austere monetary policy. It is impossible for any economy to correct its deficit or overspending history without growth. No growth, no increase in tax receipts, no increase in job creation, no decrease in unemployment. All this talk about confidence and job creation is hokum because unless a business senses an opportunity to expand it will not add jobs.

The commodity markets are pointing to a worldwide contraction, the bond market is on board, the train is leaving.

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